The OECD Secretary-General's tax report to the G20 highlights the outcome statement agreed by 138 countries which summarises the following measures developed by the Inclusive Framework to address the remaining elements of the two‐pillar solution:
The text of a multilateral convention (MLC) on the reallocation of a portion of MNE residual profits and the application of domestic taxing rights over those amounts (Amount A of Pillar One). As expected, the detail has not yet been formally signed off and the OECD says it will publish the text of the MLC 'once it has been prepared for signature, upon resolution of a small number of specific items, as a few jurisdictions have expressed concerns with some specific items'.
A proposed framework for the simplified and streamlined application of the arm’s length principle to in-country baseline marketing and distribution activities (Amount B of Pillar One). A public consultation document is expected to be published in the week beginning 17 July 2023.
The subject-to-tax rule (STTR) together with its implementation framework, which will enable developing countries to update bilateral tax treaties to 'tax back' income on certain intra-group transactions where such income is subject to low or nominal taxation in the other jurisdiction.
A comprehensive action plan, to be prepared by the OECD to support the 'swift and coordinated implementation of the Two-Pillar Solution', coordinating with regional and international organisations.
In a significant development since October 2021, 138 countries have also agreed to extend their existing commitment to refrain from imposing newly enacted digital services taxes or relevant similar measures on any company before 31 December 2024, or the entry into force of the MLC if earlier, provided the signature of the MLC has made sufficient progress by the end of the year (i.e. provided that at least 30 jurisdictions accounting for at least 60% of the ultimate parent entities (UPEs) of in-scope MNEs sign the MLC before the end of 2023). Members of the Inclusive Framework may agree to further extend this commitment another year – to the earlier of 31 December 2025 or the entry into force of the MLC - again assuming significant progress has been made. This commitment was made in recognition of the progress made to date and the need to prevent disruption or delay of the ratification of the MLC.
Belarus, Canada, Pakistan, the Russian Federation and Sri Lanka did not approve the outcome statement.
Sounding a note of caution on the OECD's apparent optimism, Jeff VanderWolk, partner at Squire Patton Boggs, commented that the Inclusive Framework hasn’t yet resolved outstanding issues relating to Amounts A and B, the two main components of Pillar One. Those issues that haven't yet been agreed weren’t specified in the statement, but VanderWolk thought that they were likely to include the consideration of withholding taxes in the application of the marketing and distribution profits safe harbour.
The OECD Secretary-General's tax report to the G20 highlights the outcome statement agreed by 138 countries which summarises the following measures developed by the Inclusive Framework to address the remaining elements of the two‐pillar solution:
The text of a multilateral convention (MLC) on the reallocation of a portion of MNE residual profits and the application of domestic taxing rights over those amounts (Amount A of Pillar One). As expected, the detail has not yet been formally signed off and the OECD says it will publish the text of the MLC 'once it has been prepared for signature, upon resolution of a small number of specific items, as a few jurisdictions have expressed concerns with some specific items'.
A proposed framework for the simplified and streamlined application of the arm’s length principle to in-country baseline marketing and distribution activities (Amount B of Pillar One). A public consultation document is expected to be published in the week beginning 17 July 2023.
The subject-to-tax rule (STTR) together with its implementation framework, which will enable developing countries to update bilateral tax treaties to 'tax back' income on certain intra-group transactions where such income is subject to low or nominal taxation in the other jurisdiction.
A comprehensive action plan, to be prepared by the OECD to support the 'swift and coordinated implementation of the Two-Pillar Solution', coordinating with regional and international organisations.
In a significant development since October 2021, 138 countries have also agreed to extend their existing commitment to refrain from imposing newly enacted digital services taxes or relevant similar measures on any company before 31 December 2024, or the entry into force of the MLC if earlier, provided the signature of the MLC has made sufficient progress by the end of the year (i.e. provided that at least 30 jurisdictions accounting for at least 60% of the ultimate parent entities (UPEs) of in-scope MNEs sign the MLC before the end of 2023). Members of the Inclusive Framework may agree to further extend this commitment another year – to the earlier of 31 December 2025 or the entry into force of the MLC - again assuming significant progress has been made. This commitment was made in recognition of the progress made to date and the need to prevent disruption or delay of the ratification of the MLC.
Belarus, Canada, Pakistan, the Russian Federation and Sri Lanka did not approve the outcome statement.
Sounding a note of caution on the OECD's apparent optimism, Jeff VanderWolk, partner at Squire Patton Boggs, commented that the Inclusive Framework hasn’t yet resolved outstanding issues relating to Amounts A and B, the two main components of Pillar One. Those issues that haven't yet been agreed weren’t specified in the statement, but VanderWolk thought that they were likely to include the consideration of withholding taxes in the application of the marketing and distribution profits safe harbour.
